The following article was originally published in October 1997, in the Total Quality Client Service Newsletter, published by Harcourt Brace.

Remember, time is money

–Benjamin Franklin: Advice to a Young Tradesman, 1748

Dear Colleagues,

When we see the advocates of alternative pricing boldly disseminating their doctrine, and maintaining that the right to value price is included in the basic human freedoms, we may quite properly feel serious concern about the fate of our profession; for what use will the American consumer put their hands and their minds when they live under a system of alternative pricing?

The professional organizations that you have honored with your confidence have been obliged to concern themselves with so grave a situation––that is, the death of hourly billing––and have sought in their wisdom to discover a means of protection that might be substituted for the present one, which seems endangered.

I propose that you forbid all of your firm’s associates to use their right hands.

Fellow colleagues, do not do me the injustice of thinking that I have lightly adopted a measure that at first sight may seem bizarre. Deep study of the hourly billing system has revealed to us this syllogism, upon which the whole of it is based:

Time is money.

The more hours one works, the richer one is.

The more difficulties one has to overcome, the more hours one works.

Ergo, the more difficulties one has to overcome, the richer one is.

What, in fact, is hourly billing, if not an ingenious application of this line of reasoning. What, you may ask, is the purpose of forbidding the use of the right hand? As for the efficacy of the measure, it is incontestable. It is difficult, much more difficult than people think, to do with the left hand what one is accustomed to doing with the right. You will be convinced of this if you will deign to put my system to the test in performing some act that is familiar to you, such as, for instance, the dialing of the telephone. We can, therefore, flatter ourselves on opening to CPAs everywhere an unlimited number of job––and billing––opportunities.

Once the associates in every branch of your firm are restricted to the use of their left hands alone, imagine the immense number of billable hours that will be needed to meet the present demand for your firm’s services! So prodigious a demand for billable hours cannot fail to bring about a considerable rise in firm profits, and pauperism will disappear from the firm as if by magic.
As soon as all firms adopt my proposal, as soon as all right hands are either cut off or tied down, things will change. Twenty times, thirty times as many assistants, staff, managers and partners will not suffice to meet the national demand for CPAs. Yes, we may picture a touching scene of prosperity in the CPA profession. Such bustling about! Such activity! Such a rise in all billable hours!

Each tax return will busy a hundred fingers instead of ten. No young CPA will any longer be idle, and we have no need to indicate to your perspicacity the moral consequences of this great revolution. Not only will more young CPAs be employed, but each of them will earn more, for all of them together will be unable to satisfy the demand; and if competition reappears (such as from American Express Tax and Business Services), it will not be a threat because we, alone, will have the competitive advantage of, at least, twice the number of billable hours per professional.

You see, dear colleagues, my proposal is not only in accord with the economic tradition of hourly billing, but is essentially moral and democratic as well. In order to appreciate its consequences, let us assume that is has been put into effect, and, transporting ourselves in imagination into the future, let us imagine that the system has been in operation for twenty years. Nonbillable hours have been banished from all CPA firms; steady billable hours have brought affluence, harmony, contentment, and morality to every CPA firm; low realization rates, write-downs and low profits per partner are things of the past.

The left hand being very clumsy to work with, jobs are superabundant, and the pay is above-market. Everything has been organized on this basis; consequently, CPA firms are thronged with willing associates. Is it not true that if at such a time utopian dreamers were suddenly to appear, demanding freedom for the right hand, they would throw the profession into a panic? Is it not true that this supposed reform would upset everyone’s life? Hence, my system must be good, since it cannot be destroyed without causing suffering.

And yet I have a gloomy foreboding that one day there will be formed a CPA firm that may allow its associates to use their right hands. I have the feeling that we can already hear the advocates of freedom for the right hand. Therefore, it will not be inappropriate for the proponents of left-hand CPAs to intermingle a few threats, among their fine theories––such as time is money––to these radical both-hand CPA advocates.

“What! You wish to substitute the billable hours of the right hand for that of the left, and thus force down, if not entirely abolish, time, the sole and most important road to success and wealth? And this at a time when increased competition is already imposing painful sacrifices upon CPAs, causing them to worry about their futures, and making them more readily disposed to listen to bad advice and to abandon the wise course of conduct to which they have hitherto adhered!”

I am confident that, armed with such cogent reasoning, if it comes to a battle, the left hand will emerge the victor. If that fails, however, we’ll need appropriate regulations, to be enforced by the rule of law––promulgated by the various state’s board of accountancy––and backed up with severely harsh punishments meted out to those CPAs who refuse to use only their left hands.

Nevertheless, I do not intend to conceal from my fellow colleagues that there is one respect in which my project is vulnerable. We may be told that in twenty years all left hands will be as skillful as right hands are now, and it will then no longer be possible to count on left-handedness to increase the number of billable hours, jobs, income and profits, in CPA firms across the country.

My reply to this is that, according to learned doctors, the left side of the human body has a natural weakness that is completely reassuring for the future of CPA’s prosperity. If, then, fellow colleagues, you consent to abide by this proposal, a great principal will be established: All wealth stems from the intensity of labor.

It will be easy for us to extend and vary its applications. We shall ordain, for example, that it shall no longer be permissible to work except with the foot. Men and women have even been know to write without using either hands or feet. You see, fellow colleagues, that we shall not be lacking in means of increasing the number of billable hours in your firms. As a last resort, we should take recourse to the limitless possibilities of amputation.

Finally, fellow colleagues, if this proposal were not intended for publication, I should call your attention to the great influence that all measures of the kind I am proposing to you are likely to confer upon men and women in positions of power. But this is a matter that I prefer to reserve for a private audience.

There is a lot of noise (especially in the accounting press) about the move from the classic compliance offerings from accountants into more advisory work. All the industry pundits are saying that the accounting profession is going through a period of change and we, as professionals in the industry, need to adapt. I fully agree with them.

The issue seems to be though that many of our colleagues are fearful of the change. I believe this has a lot to do with the type of people who have been attracted to and trained in the profession.

The following is a short list of adjectives that can describe the approach adopted by a lot of people in the profession:

amiable (nice people to have a chat with)

good listener (wanting to get to the heart of the issue)

loyal (will “go in to bat” for their clients)

dependable

sincere

We can couple these with a few more for the real technocrats in our industry:

accurate

precise

fact finder

careful

cautious

conservative

All absolutely perfect for an accountant preparing your financial statements and assisting you with your taxation and compliance matters.

Contrast those traits with the approach required to help a customer in the advisory space. Adjectives we might use to describe people in this arena include:

direct

inquisitive

daring

assertive

driving

Mixed with a few of the following:

persuasive

enthusiastic

confident

influential

positive

Now when I look at the lists above, I see polar opposites. The “traditional” accountant approach and style can be somewhat disconnected with the “advisory” accountant style.

When you look at the changes that are imposing themselves (being imposed?) on the profession at the moment, consider whether your mindset and approach is what is truly required to deliver the service your clients want. Having worked as an accountant for over 20 years, I know a hell of a lot of my colleagues are very precise, accurate and cautious. And that is a great thing. In the right area.

I find the same issue crops up with the firms who move proactively into issues like value pricing and changing the way they engage with their clients. The more conservative, “classic” accountants do the whole fear and attack response when challenged. They will generally evade the issues and resort to “the rules” rather than assess the opportunity on its merits. They will, politely, pay lip service to the idea while telling you it cannot work.

The transition in the accounting profession is therefore going to be quite painful for many of our colleagues. Their natural style will make it incredibly difficult for them to make the move. In effect, they want to see a lot of other firms make the change before they do. This will, in their eyes, reduce the risk of such a move.

The challenge with this approach is that they will be starting well behind the game and therefore struggle to catch up.

There are piles of surveys and reports indicating what it is that clients want from their accountants. The problem is a lot of accountants are too busy being focused on the compliance aspects of their businesses, and they will miss the significant opportunities that lie directly under their feet.

We have had some success of late by talking with clients about what they are wanting. They really want support to think and act for the future – not tell them what happened last year (which you cannot do anything about).

Many younger practitioners are “getting” the whole idea, but they are more focused on marketing than delivery. With this situation, a melding of the old and the new – marketing with the “young guys” and delivery (with experience) from the “old guys”, can be a powerful combination.

When you next have a conversation with an accountant, ask them how they are going remaining relevant with and for their clients. If they say that the industry transition doesn’t apply to them or their clients, ask them just one question. Really?

I recently posted about a seminar I attended last week. The feedback I have received from that post has been significant. The responses have ranged from “Oh my Lord – that’s us” to “so, there is a way forward”. Great, but I want to concentrate on the first type of replies received.

So many firms understand that the way they operate and their business model isn’t great, but it’s all that they know. To try and move them to a new, more effective model takes a great leap in mental construct on behalf of the owners and managers in those firms.

One of the responses I received was from a bloke I know well who has just taken over as CEO of a professional knowledge firm. Well established, reasonable size and “good, traditional” brand. And he is frustrated up the wazoo!

It would appear from his email that the following issues pervade the organisation:

staff are rewarded with bonuses for hitting “productivity” targets;

The transfer from WIP into debtors (you know – actually billing the customer) is fraught in that, once the bills are raised, the customers get pissed off;

Consequence of this is that a lot of work remains in WIP as the senior people responsible for billing the WIP are too scared to raise the bill as they don’t want to have to deal with an angry customer;

Debtors ledger is out of control as there are a large amount of accounts “in dispute” which means that the whole thing is taking a massive amount of time and effort to clean up.

Now, from my view, this appears to be the antithesis of everything a professional knowledge firm should be. Let me posit my view of the warped thinking that enables such an environment to exist, let alone continue:

Productivity

We want our people to be working – agree on that. But, do we want them to be working on things that make a difference to the customer and are valued by the customer or do we want them doing things that waste a heap of time on customer accounts? The behaviour you reward is the behaviour that continues. By tying rewards (bonuses) to productivity targets, we are encouraging our people to bill as much time to the Holy WIP Ledger as possible. The argument goes that, when we record everything, it gives us a basis for billing everything to the customer (more on this below).

But what is the real message that we are sending to our people when we bonus (often ridiculous) productivity? Is it a message about effectiveness? And is it really a message about efficiency? Too many times, firm leaders sprout on about efficiency but the bonusing system actually penalises people from working more efficiently as their productivity targets won’t be met (the thinking goes: if I do this job more quickly, I won’t spend as much time and therefore, I stand less chance of getting the bonus). Where is the incentive for them to be more “efficient”?

As part of this system, you get the inevitable build up of your Holy WIP Ledger. Many firms see this as a “lead indicator” (as per last week’s post) when, in fact, it is a wish list that often bears very little resemblance to collection.

The other message you send to your people with the focus on hitting production targets as far as time spent is that they will only see a customer as something to be billed, not valued. The training that occurs as a consequence is that the “up and comers” get taught that to get ahead, you need to focus on pleasing the partner/manager with high productivity rather than pleasing the customer by delivering great outcomes.

As an aside, it is often the case that the less senior people very rarely (if ever) get to meet with the customers. How is this going to play out in their career development? How is this going to assist them with understanding the file and the customer needs? All information is “filtered” through the senior people before it gets to the actual “doers” of the work. The outcome – they flog their guts out to get promoted and then have no experience in dealing with customers face to face. I know of one firm in town here where the only people who see customers are the partners. Talk about rate limiting factors! An obvious outcome of this is that there is more rework required and heavier partner involvement in getting a file “customer ready” as the instructions are, more often than not, “lost in translation”. This though, in the warped world of timesheet based billing, is good – more chargeable hours to bill, higher “productivity” and a bigger Holy WIP Ledger.

Holy WIP Ledger (HWL)

So, we have a whole heap of people billing the Holy WIP ledger as hard as they can as this is the basis on which they get rewarded. The HWL is seen as a current asset in the books of the business and the financiers and owners of the business see it as “money in the bank”. All that needs to happen is for it to be billed.

Herein lies a bit of a problem. I have yet to meet with a firm where they state, honestly, that the HWL is fully recoverable. I know of one firm I have been dealing with who ran a HWL that was a pure estimate. They had timesheets to (sort of) back it up, but they knew that they were all rubbish so they just did an estimate. It was probably as approximately right as the timesheet based one anyway.

I recently did some work for a customer in a professional knowledge firm regarding the exit of a Partner. The HWL was obviously an issue to be addressed as the approach they were considering was one based on a mixture of profit and net assets. To get a true picture of net assets, there needed to be a full review of the HWL as everyone recognised that it was not valid and certainly not all collectible. In this circumstance, I suggested that we not go through this process. Instead, we developed an approach which looked at what the exiting Partner was happy to receive for his equity and what the continuing equity holders were prepared to pay for the share. As I said to the Managing Partner – “We can go through the whole process and get a result. The real risk here is, whilst it might be very right as far as the number goes, someone is likely to be pissed off”. The approach we used meant that my business didn’t get a whole heap of extra money for going through the valuation process, but, we did ensure that the Partners (exited and remaining) have kept very very good relationships and our customer very much values the creative approach we have adopted to solve their problem. In short, we provided value rather than a number. And we have further strengthened our relationship which will lead to more referrals and customer longevity.

The HWL is never right. The term in most professional firms is “lock-up” – how many days the firm has “locked up” in WIP and debtors. Often time, this number is horrendous – I know of some firms who have nearly one year’s worth of revenue “locked up”. For what purpose? You can’t spend it as it’s not real. Why bother measuring something that is so subjective as to be useless?

Debtors

To get a bill done from your HWL, it needs to go through a process. Often, it will be a senior person or Partner who goes through this process. More often than not, they will sit down and agonise over the process “If I bill them what’s on the HWL, they will have a melt-down”. So, what happens is that a bill will be raised against the customer for some portion of the HWL balance outstanding – in effect, what the person doing the billing believes they can get away with. Conversely, if you do bill them for everything that’s on the HWL, you are almost guaranteed to get a pissed off customer on the phone three days later (or, worse, never – as they quietly leave and have no intention of using you again – or paying your bill). There is no positive outcome that arises from this. For anyone.

Now, the current thinking with regard to this is that firms should budget for “write-offs”. In other words, they are saying (in words and deeds) that they know the HWL is crap. But they then hold that the basis of their charging of the client is on time spent. So, if the client has agreed to appoint them on time spent and they don’t bill the full time, are they really engaging them on that basis or on a “best estimate” at the end of the job? This is where “estimated ranges” of accounts come in to it. The client is told the cost of doing the work will be in the “range” of (say) $5,000 and $10,000. The client hears “$5,000”, the Partner hears “$10,000”. When the bill ends up being $8,000, both parties are pissed off.

What happens more often than people care to recognise is that there is a lot of “stuff” on the HWL that the senior guys are just too scared to bill. I have seen some aged HWLs which record work done up to two years prior that is yet to be billed. Seriously? Is it ever going to be billed? Or is it just there as a tacit admission that the system ultimately doesn’t work? This then leads to other KPIs in firms about the ageing of HWL. Most of these are there but not adhered to. If the WIP isn’t billable, write it off – with all the “appropriate” consequences.

But, back to the staff posting time to the HWL. How do they feel when the time they put in to a client is then written off? Where is the feelgood out of this? For anyone? What is their thinking at the end of a job when, they are encouraged and incentivised to record all the time only to have it written off? How will they think about the Manager/Partner who has “done this to them”? What message does it send about the “system”?

So, after much navel gazing and internal brinkmanship, the bill is sent out to the unsuspecting customer. The customer gets angry. Now, one of two things happens. The customer ring the Partner to have a whinge about the bill – the firms sends out a detailed HWL report to the customer detailing everything they have done (including the 15 minute phone call – billed as 18 minutes – where the customer recalls at least half of it was spent discussing the football results) for the period the bill covers. Guess what, they get more angry “They’re charging me for what?” Then they start to do the maths. “If he is $500 per hour and he spent 8 minutes talking about the football, he wants me to pay him $100 for that?” Not a great outcome.

Source: geektoauthor.blogspot.com.au

The other thing that can happen is that the customer simply doesn’t pay the bill. So, they start to get harassed by the ever-vigilant accounts department in the firm. The “friendly reminders” come out, then the “is there a problem” letters and so on until the letters get more threatening. Really good, positive stuff about customer engagement through this whole process.

At the end of the day, it gets nasty and people start defending positions. The firm will (usually) relent and write-off a part or the whole bill or, sadly, take the customer to arbitration. On this note, I remember a number of years ago when Ron Baker did his “Firm of the Future” tour around Australia. During this tour, I met with a number of the Legal Services Commissioners from various states around Australia. Their major source of work? Fee disputes. Their fervent wish was that all firms priced up front as the firms that did this hardly ever had a fee dispute.

So, we have a debtors ledger that is somewhat suspect as to the real collectability of the balance. Which means, when coupled with the HWL, the “lock up”metric used by a number of firms is inherently questionable.

After all of the above, is it any wonder why my firm dumped timesheets in 2007? It has saved innumerable hours, it has reduced customer complaints and has meant that the team in here are far more focused on delivering positive customer results rather than inputs. As stated above, the behaviours you get in your firm are the ones that you reward. Is your reward program incentivising the right behaviours? Is your firm business model one which is team and customer focused?

There is a better way of running a professional knowledge firm. Far less stressful, more enjoyable and one where you actually want to come to work. if you look after your people and customers, the profits will (generally) look after themselves.

The frustration of firm management can be reduced and/or removed. There are a band of highly experienced guys and girls at the Verasage Institute who can help you make the move. But you have to make the first step. I strongly encourage you to do so.

This week, I attended a seminar where, to be frank, there were some arguments put that had me considering the option of tearing my skin off and rolling in salt – it would have been less painful.

Consider some of the points made at in one of the presentations at the seminar (and this is not an exhaustive list, my comments/thoughts are in italics):

You should get your “star performers” and keep loading them up with work as they get in front of the pack. In effect, reward them for their great performance by loading them up even more and putting more pressure on them – what an incentive that is!;

Apparently, your WIP balance is a leading indicator for your firm (!) – not sure how this works, but some in the room lapped it up – how exactly is the WIP report a lead indicator other than for the bills you are going to raise at the end of the month which will be the cause of the client complaints in the month following? So, maybe it is a lead indicator – of client complaints – the higher the WIP, the more complaints;

The seminal approach to customer happiness: “If you touch the client, you bill the client – for everything”. This phrase reminded me of a discussion I had the other week with a somewhat more visionary firm in Adelaide. They have some folk who are not all that happy not recording the time they spend working on/for/with/around their customers. I asked them during the discussion “Do you record the time you spend thinking about your customers over the weekend or at night when you’re at home?” Of course they don’t. However, according to the approach being promoted, you should. Work that out, or, better yet – set a budget for it!;

You need to budget for write-offs each month;

References to “fixed price estimates” – what, exactly, are these? I have been racking my brain about this – if someone can provide some clarity for me around this concept, I would be grateful;

Apparently, client satisfaction is important, “but we do have to make a profit though” – in essence, the firm’s goal is profit first – if that has anything to do with happy customers, all well and good. To me, this seems somewhat arse-about;

You need to ensure that your clients understand that their actions reduce firm efficiency – OMFG. So, we should punish the clients for interrupting our work – actually laughed out loud at this one; and

Clients need to pay for the inconvenience they cause – as it would seem that they are the cause of all the problems that exist in the first place.

According to the sage presenting this, “clients don’t understand how accounting firms work”. Really? Do they need to?

It was argued that firms need to focus on productivity and efficiency at any cost as these are your major drivers for profit. You need to ensure that you are flogging the be-Jesus out of your people (they will apparently love you for it) and encouraging them to work harder so that you can load them up even more. This bit I found offensive. People are volunteers in your business – they can choose to turn up or not. I hear many firms complain about staff-churn and turnover – any bloody wonder! If your culture sucks, you get the team you deserve. Culture is the result of the language, behaviors and focus of a business. If these are all based around profit at any price, then they get the culture that supports that. Won’t be happy or contributory or collaborative, but it will be, well, there.

I have been a willing recipient of the famous “Verasage Headache” on numerous occasions. They are positive, challenging and serve to help me grow.

Unfortunately, the headache I received from this session was entirely different. It is a headache based around people being measured on productivity and chargeable hours rather than on effectiveness and customer relationships. It is a headache that resulted from arguing that the customer is there to be charged heavily and charged often – this based on the theory that any bill they get from you will be a good bill (driven, of course, by your “leading indicator” WIP report).

So, at the end of the session, I felt sad. Very sad. There were owners and managers of accounting firms in the room who were assiduously taking notes – picking up tips to make them better at flogging the crap out of their people and not really giving a shit about their customers.

Tim, our GM, was at the session with me. His words at the end of it summed the whole thing up beautifully – “Pretty scary shit actually”.

In recent posts here, I have argued as to the effectiveness of various forms of measurement and their utility in managing outcomes.

I have just posted in further detail on our firm website (and, to keep Ron and Ed happy, I haven’t referred to cricket, but rather Aussie Rules football). I encourage you to have a read – let me know what your thoughts are.

Over the past few days, my understanding of “why” firms won’t move from the timesheet model has had a breakthrough.

It’s really quite simple – people feel they need to “measure” their performance in some quantitative manner. This means that they prefer to use an inherently subjective measurement forms the basis of their perception as to how they have “gone” in doing their work. This sheeted home to me the other day when I was having a chat with one of my gurus at work. They wanted to know whether they had progressed over the past year and how successful they had been in delivering outcomes.
The discussion turned to the methods we could use to assess how they had performed. All good, but the conversation then progressed to a point where we were discussing the difference between qualitative and quantitative measures. Now, being accountants, we inherently prefer to use quantitative measures – things like gross margin, profitability, ROI, efficiency and the like. All good and useful in some respects, but the measurement is usually only an indication of something else that relates to qualitative issues.

Let me explain. In our conversation, we talked about the things that were really important to our firm – things like development of each other in technical and non-technical ways (communication, customer relations etc). These things are incredibly difficult to measure – so difficult that I am not aware of any way of objectively assessing them. As I pointed out to my team member, they had contributed incredibly to the development of one of their support people over the past 12 months. They had lead by example and created a more rapid pathway for the person concerned to develop their career – personally and professionally. The leadership provided and coaching and development have formed a platform for the support team member that will take them through their career. As I asked “How do you value that?” What method do we use to assess this level of contribution? In my view, such an assessment is going to be subjective and no two people would come to the same conclusion as to the “value” of that work.

In assessing this type of contribution, if we were using timesheets, we would be able to point out that the estimated time (do we record it in 6 minute or 10 minute increments) that might have been allocated to “development” or “training”. But, much of the training related to customer work so, should we allocate it to the customer? If we did allocate it to the customer, they would have every right to get pissed off that they were being “charged” for training. So many decisions!

How much time should we take in this work? Is here a benchmark or average (you know – where the best of the worst meets the worst of the best) that we should use to determine the input required? No. Everyone is unique and learns in their own particular style. There is no one over-arching approach that works for everyone and therefore, the time spent tailoring the training approach to achieve the best outcome is of incredible value (also, the trial and error process undertaken to work out the most effective approach). The value that my resident guru added to her team member was the combination of a range of skills, talents and abilities that they have developed over many years. And then, how do we attach an “hourly rate” to that? At the end of the day, does the arduous quantitative process we would need to go through to get the result add anything valuable to our analysis or inform our decision making?

The thing that really matters is that the outcome is effective. The process in itself is inefficient until such time as the trainer and trainee have worked out what works for them. Using a “one size fits all” approach will only create average outcomes and no-one wants to be average! Spending the time to work out effective outcomes is far better than recording the time spent. For example, if we knew that it took Manager A and Team Member B 20 hours to work out the most effective training method for Team Member B, can we use that when we look at the potential training time needed for Team Member C? Of course not. B and C are different people with different learning styles. To use the metrics from B to design the process for C stands a wonderfully unlikely chance of being useful to anyone for anything.

The measure of effectiveness should not be merely based on some subjective assessments that inform us of little and guide us nowhere. The effectiveness of what has been done in training lasts a long time (a lifetime?) and to try and reduce it to a number is devaluing the contribution that has been made.

And, because the analysis and assessment as to the effectiveness of what you do is so inherently subjective, most firms cling on to timesheets – they know they’re not right. They know they are subjective. They know they are a pain in the you-know-what. But they are too scared to let them go as they believe it’s all they have. Sad really.

I was recently asked to answer the question of What’s in the Wind in the Accounting Profession? I believe such questions are naively complex. I feel it leads to a drumming simplification of MeTu (aka me too) thinking. The collective of the various professional press and media along with national and state association leadership tends to rework an all too common concert of sound bites and feel good Kumbayah designed to placate the rank and file while providing a spin that there is something significant just around the corner if we could just stretch a little. This pandemic of Pabulum for the Professions eventually annoys even the most infrequent of listeners.

Now that I have that off my chest, I will share the following thoughts of What Should be in the Wind in the Accounting Profession? In my view, what is (and should be) in the wind is simply Pollen.

Profits over Production: The debate about effectiveness (doing the right things) over efficiency (doing things right) is over. The corollary is that firms need to focus. Focus on profits over production. Focus on Results over efforts. Firm leaders need to focus on profit improvements over gross billable hours. Customers do not care about the hours one works; they care about the results that are delivered. Effectiveness is far more superior then efficiency.

Efficiency is always a ratio and never, in and of itself, ever an output. FedEx is far more effective then the postal system. In order to be effective, they had to seek better outcomes and certainly FedEx improved its efficiency in the process of effectiveness but envision that FedEx designed a package system but still used the Pony Express instead of a fleet of planes? The result would have been highly efficient (they know where each and every package {and its horse/rider} but it would have failed as it is ineffective today to transport packages in such a manner. In essence, firms need to stop orgasming over top-line growth and instead need to focus on profit improvement.

Opportunities Abound: True professionals are naturally observant: Too many firm leaders look at their markets as closed pools of opportunities. They naively seek growth at the expense of competing firms. In fact I have heard partners of established firms specifically target another firm’s customers and operated as if all members of our Profession were competitors instead of colleagues. This is utter nonsense and such thinking destroys our Profession.

The first canon of our Profession as outlined in the AICPA’s Code of Professional Conduct (Principles) notes that we have an obligation, as members, to promote the well being of our Profession. This includes both improving the Art of Accountancy and, likely more importantly, to Cooperate with Each Other. We aren’t cooperating if we are poaching.

Learning and expanding by observation is simplistically easy yet requires infusing effort into the process. We grow our firms by investing in the opportunities we find and the ones we create. Waiting for the phone to ring is not a marketing and growth strategy. Firm leaders must learn to create their own futures.

Smart real estate developers have learned to look for leading indicators about where to build and what to build. For example, when it comes to mixed-use commercial style real estate what do you believe are the leading indicators as it relates to capturing early-stage value? It isn’t zoning or demographics. And, it isn’t merely location, location, and location. These indicators are either lagging (zoning changes occur after someone has figured there is a better use, acquires or options the property, and then seeks the changes they seek) or they are coincident, meaning they help us concurrent with the changes in the market. Neither of these is leading (predicting where the values are headed). It turns out that one of the best leading indicators is to watch where the artists go.

Artists are relatively poor (economically) and need to find inexpensive and creative spaces for their studios and residences. Artists seek out great value. Artists then tend to invite other artists to share their spaces. These new artist colonies begin a following. At some point these colonies of people draw the attention of supporting and cottage companies; (from creative coffee shops to stores to restaurants to dry cleaners) entire communities follow the artists to their new neighborhoods. And artists are creative and innovative as it comes to the quality of life of their buildings and neighborhoods driving up values by driving away dirt, dust, and decay. Artists, it turns out, are a great leading indicator for real estate developers who desire to be early adopters of profit opportunities by merely observing their own communities and where the artists are headed.

Firm leaders need to approach their growth the same way. Look for the leading indicators. Look for your firm’s equivalent of artists. Look for the innovators, the inventors, the new immigrant businesses, the prospects that are expanding, and look for value when others are blind to its beauty. Firm leaders need to get of out their offices and look around. They need to be active members in their communities and seek positions of influence in fledgling industries.

Firms mature, as do their clients. Anyone can recognize a change is afoot after the proverbial tipping point where the innovators and early adopters have paved the way for the following majorities. The best firms and best firm leaders are at the left-hand edge of the diffusion curve. These mavericks inherently understand there will be many investments that fizzle and only a few that sizzle. It is those profits from the sizzling hot successes that drive the firm’s future value and growth.

Legislation and Regulatory Issues: Together with my VeraSage Institute colleagues, I have the opportunity to speak to and meet with thousands of fellow CPAs and CAs each and every year. One of our favorite questions to ask our audiences is: Have you recommended our profession to a loved one during the past year? Across the board and regardless of country (most common are USA, Canada, UK, Australia, and New Zealand) we receive positive responses from 10-15% of the participants. Inversely, this means that 85%+ of our fellow professionals have not and in reality do not recommend our profession to loved one (defined as a person one knows and cares about – unlike say a high school or college student sitting through some mind numbing “Feed the Pig” commercial).

This decline in advocacy about ones chosen profession is a leading indicator that something of a cancer must be present that is stripping away our enjoyment about what we do and how we do. Failure of firm (and profession) leadership to adequately diagnose and then cure this disease suggests the end is closer than we think to losing ourselves and becoming a trade or job rather than a career and profession. Personally, I do not want to see our profession go the way of the Scribe’s and be relegated to pages in a history book and postage stamp.

When asked why participants avoid recommending our profession, the most common responses include: regulatory overload, work load compression, and the sins associated with hourly billing as it relates to technological improvements and efficiencies via technology (think about the reduced time it takes to complete a tax return using software today then say 30 years ago when we filled in bubble sheets on CompuTax forms, or even 50 years ago when we prepared returns by hand and typed the values onto the forms).

Lets look at regulatory overload. This includes government regulatory matters from the SEC, the PCAOB, the IRS, the FASB, the AICPA SSARs, the GAO, the DOL, the 50+ State Boards of Accounting, the IFRS, and all other bodies deemed capable of dolling out but never retracting rules and regulations that impact what we do and how we do it. There is no joy in contorting ourselves to please the whims of bureaucrats residing in such cities like Nashville (home of NASBA), Washington, D.C., home of the federal morass of death by regulatory action, NYC and RDU (home of the AICPA). Such regulators act like they can use rules and procedures to triumph over common sense and good judgment. They can’t; but they sure try.

Leaders of our profession should seek ways to reduce the complexities of rules and regulations in exchange for more principled driven decision making that promotes the right answer, with the right disclosures, with the right outcome, so that users of our reports and services may make informed judgments about the economic activities of the businesses and individuals we represent. Far too often, the so-called leadership of our profession is to cozy with regulators and rule making bodies and, in fact, support additional complexities under the misguided notion that more is better when in reality simpler is better.

As it relates to workload compression, this too is a function of an overzealous regulatory and ill informed bureaucracy and/or legislative body (or bodies). Much of this compression came about during the TRA 86 when fiscal years for pass through entitles was essentially abolished. This shifted more audit and assurance work along with the tax work to the front half of the year rather than allowing for a smooth seasonality of services. This has increased our need for people in narrow time frames and then we face an excess capacity of human capital in others. Firms burn out their people increasing the chance that our actually “best and brightest” leave our profession as it lacks the enjoyment they hoped to achieve in life. Firm leaders should continue to pressure their local, regional, and national officials to return to a time when natural business cycles could be used for associated filings and reporting periods.

Finally, the toxic nature of timesheets and billable hours drive talent from our profession. Time-based billing is the antithesis of professionally based pricing. Hourly pricing where one is compensated based upon recorded time does not align with the goals and objectives of our customers. Our customers desire a result. When we are compensated based upon our inputs and not our results, we are apt to add useless procedures, steps, and complexities that drive the billable hours up and hence charge the customer more. Also, timesheets are full of lies as people are unable to really capture in (6 minute) increments what they really do all day and so they tend to make a lot of it up. Ric Payne (the smart founder of Principa) has suggested that over time the lies balance each other out (e.g. I work a little for free for client A today and bill my time to client B, and sometime in the future it is reversed). This may be realistically true, but does not cure the challenge of misalignment of interests. Another toxic challenge of the timesheet mentality is that billable hours are rewarded for promotions, partnership, and influence.

Too many firm leaders list their billable hours like a badge of honor when in fact they should be ashamed. It is far better to produce results with effectiveness rather than efforts and price according to the value delivered rather then the time invested. I am reminded about the conundrum of hours invested versus the effectiveness of the team member via the following example shared by one of my former firm partners. His wife is a construction project manager. Her supervisor one time confronted her about the fact that the “men” on the job site were spending part of every Saturday working while she did not. The supervisor suggested this looked like she wasn’t pulling her “weight” as a team member and that come bonus time she might not receive an equitable share. Her response was superb. She responded with “if I were as wasteful and inefficient with my work during Monday through Friday, I would have to work Saturdays too.” – How right she was. And how wrong are firm leaders that value the inefficient worker over the effective one because the tool for measurement only records efforts and never results.

A final aspect to the tainting of the value of our professional lives is living within the childish nature of our elected officials. Their creation of complex rules and financing regulations designed to reward their patron saints (their donors) end up punishing their people by forcing unwarranted behaviors by citizens in order to minimize their individual tax footprint rather than supporting a culture where people seek to maximize their individual opportunities to expand their financial horizons. Too much of our national GDP is spent reporting and navigating the complex tax code. We need a simpler and fairer method to collect the necessary funds to operate our government.

Loyalty and Customer Economics: Firm leaders and members of our profession need to understand and operate within a customer loyalty framework. Too many firms reward the hunt, the capture, and the kill of a new customer while failing to understand why their best customers leave. It is far superior to enhance the value proposition of current customers then it is to invest heavily into new relationships.

Customers love to be loyal. Just ask any director of an airline loyalty program. Even if passengers dislike flying, they love ‘’their airline”. Ask a Nordstrom customer about loyalty and they will frequently advertise that they rarely shop elsewhere even if they believe Nordstrom is slightly higher priced (they generally are priced very competitively). Just look at American Express that captures great loyalty from all of their various card levels – from the inexpensive Green Card to the exclusive Black Card, American Express delivers value across the board or its continuing customers would use alternatives.

What is frequently missing in CPA firms is a reason for customers to remain loyal. This is partly because our profession focuses on efforts. CPAs extol how hard “we” work rather than focusing on helping the customer achieve her objectives, goals, and desires. When asked to rank those attributes that customers use to select CPA firms, firm leaders respond in the inverse to the customers. CPA firm leaders discuss their technical skills and acumen over their softer skills like communication, awareness, and creativeness. Customers on the other hand respond by relying greatly on communication, creativity, and engagement. Customers struggle to comprehend our technical skills yet too many CPA firm leaders only speak about their knowledge while ignoring their more important competencies.

CPA firm leaders need to understand why CPA firms are hired and why we are fired. We are rarely, if ever, hired or fired due to our technical quality. We are almost never hired or fired because of our price (about 4% of all engagements are decided upon price). We are almost always hired and fired because of our communication skills, our ability be creative, our eagerness to help our customers, and our availability to help them when they want our help and not “after tax season”. Sometimes we are hired because we have nicer furniture or a better location. Sometimes it is because we will meet them at odd hours of the day. Sometimes it is because we offer a solution that others can’t. What I can guarantee you is that you aren’t hired and fired because of price or quality. It is all service related opportunities and challenges that drives customer decisions. Investing in customer loyalty metrics goes a long way to a more profitable firm. Simply remember that a current customer can be 11x more profitable then a new customer.

Experiment with Service Offerings: I believe that the best firms are the ones that experiment and expand their offerings. Many experiments will fail to deliver their desired results. That is a price of admission. There are two primary reasons for a firm to explore new opportunities and experiment with creative options: The first is that our complex customer base is not standing still and their wants and needs continue to evolve and if we aren’t at least with them or even better, ahead of them, they will naturally look elsewhere for solutions to their unfilled needs and desires. The second reason is that many members of our profession have signs of ADD. In essence, our best and brightest get bored and bored people become inattentive and inattentive people make mistakes. Worse, bored team members daydream of better jobs and brighter futures and these daydreams become realities far too often.

I have concluded that our professional attention span is about 3 years. This is enough time to learn a skillset, master that skillset, and then teach that skillset to a new person and then be allowed to move on. I see too many firms with team members living the same routine for years and decades to the extent of missing the true needs and wants of their customers. Hence, they become my customers. Times are changing, generational shifts, web 2.0 to 3.0 – go head and add some R&D; experiment with new offerings, and take aware the boredom of our lives. Remember, each new mountain pass travelled generates a new world view and an ever-expanding world view is more necessary today then it ever has been.

Networking – Networking is not social media. Although social media is a part of networking it is not networking. Networking encompasses so much more than mere social media. Networking is the act of becoming an integral part of the multi-variant solutions to unknown problems. Thus positioning the professional in the middle of the necessary web of needed information and solutions to an infinite array of challenges.

We, as professionals, have the distinct opportunity to provide what I term as “bridges to structural holes”. The “structural holes” as I term them, are the distances between what a customer has and what the customer needs. Of course, one could substitute almost any synonym for customer. The key is that a well-networked professional is the key that opens many doors.

Most firm leaders undervalue networking; unless the participant is already a member of leadership. That is unfortunate. Networking should begin from the beginnings of student life, through early careers, into leadership, and into retirement. As Australians are fond of saying, “we all need Mates”. And Mates watch out for each other.

Networking is not about just providing referrals or leads. Networking is seeking solutions to problems that possibly don’t’ already exist and, concurrently, listening to wants and needs from those who will benefit from connections that we are only to provide.

Networking requires dedication and commitment. Networking is not about “you”, it is always about “them”. Networking requires in investment in time and resources. It requires your ears to be always open, your mind to be engaged, and your heart to centered on your clients, friends, and colleagues. Networking isn’t just slapping palms or sharing LinkedIn profiles. Networking is active engagement across all disciplines, across all strata, across all industries, and encompassing all opportunities.

Networking should begin even before the beginning of a career. Networking must begin most definitely concurrent with your professional work. Twenty years into a career, the connections made in one’s youth frequently pay dividends. The customers you meet, the contacts that are made, the alumni of your university, the town where you live, and the hobbies that you share are all part of a valuable interconnected web of opportunities and solutions.

The most important time for investing into your network is at the beginning of your career. Networking’s ROI is akin to the time value of money. The earlier your investment, the larger your return. Networks expand exponentially. They are not a zero-sum game. Young people must develop a network and they need time and opportunity to learn this craft.

Partners and other firm leaders must allow younger professionals time to attend meetings, events, lunches, professional society events, and community activities. Each and everyone one of these avenues provide an opportunity to meet someone whose individual return on investment is multiples greater than the average. And, when this occurs, the net present value of those future transactions is exponential.

Yet, such networking activities as described above run counter to the firm’s current objective of maximizing revenues. If, on the other hand, the firm had a long-term profit view, leadership would both understand the value of these early career investments and support return multiples of any “opportunity costs incurred today”.

A professional’s value is predicated on their ability to solve expressed and unexpressed customer wishes and problems. If you can’t do this, then the professional is really just a technician; nothing more than a hired gun to perform the work orchestrated by others. There is nothing extraordinary in merely following the recipe crafted by others. The value of a professional is primarily connected with one’s ability to craft excellent resolutions to an ever expanding list of unfulfilled opportunities.

My advice is to constantly expand your network, each and every day for your benefit and the benefit of others. In this way, you maximize your opportunities to really make a difference in the lives of others. There is nothing truer than a professional that makes a difference.

There you have it. Now you know what I believe should be in the wind of the accounting profession.

OK, so we’ve all got them. You know, those things that we look back on and think “what the hell – why did I do that?” or, (even worse) “why didn’t I do that?”

I’ve had plenty – more of the former type than latter, but it all forms part of the rich tapestry of life that we humans form part of. And, much as we may regret things, it helps us develop into the people we are and forms the foundations of who we will be. Great.

BUT, what would happen if you knew that something was going to happen and, despite every nerve in your body screaming at you to do something, you didn’t “do it” (whatever “it” might be) – is that really a regret? If you adopted a stance of denial, does that turn into a form of regret?

How is it that, even when confronted with massive amounts of evidence supporting a reality that is going to occur (and I’m not talking “consensus” here) – I am talking incontrovertible facts – you still don’t make the moves that are required?

I’m not going to launch into semantics here (I will leave that to my far more learned colleagues in Verasage), I am just trying to posit the argument that often times, people do not do what they should and don’t take action when they should or find a million reasons not to do something they know they need to because, well, they have lost something.

What is the loss they have made?

Consider if you will the current state of the accounting profession. We are seeing massive changes set upon us – mainly from technology/cloud solutions, but also from offshoring operations. Did you know, for example, that most of the Big Four have established offices throughout Asia to which they “in-source” their compliance work at (about) AUD10 per hour? I know of an Australian example where a large corporate has moved a significant volume of their processing/admin work to a Pacific nation as the effective wage rate there is AUD1.20 per hour – a bit better than the award rate over here!

This is all happening now. Today. To our beloved accounting profession. And what are the vast majority of our colleagues around the world doing about? Nothing.

I posted some time ago about the changes that were occurring to our profession. The changes that were coming then are rolling out even more quickly than I anticipated.

So, what is the profession doing to adapt to this change? Not much. Some of us a screaming to all who can be bothered to listen that there needs to be a change in business model. Hardly anyone seems to be listening. Or caring. And we are not, by the way, being “chooky looky” – the sky is falling in!

What are most accounting firms doing to try and combat the inevitable? They are trying to be more efficient. Making better time recording platforms and putting greater emphasis on staff productivity. Anyone recall Danny DeVito in “Other People’s Money”? Buggy whips.

To make the process more precise isn’t what’s required in the accounting profession today (or tomorrow). As Ron Baker is fond of saying – “I’d rather be approximately right than precisely wrong”. Bravo Ron! But tell that to the Luddites who persist with a 1950’s business model 65 years after it was made common place and 64 years after it became redundant.

The time-sheet is an anachronistic tool that does not fit with today’s requirements. Staff hate them, admin hates them, managers hate them and Partners/Directors hate them. The people who hate them most however, are the second most important people in your business – your customers.

In some respects, I am advocating a “back to the future” scenario – get rid of time-sheets – but with some important changes. Changes like agreeing the scope of work and price up front with your customer. The change which includes and involves your people in determining scope – and price! The one where you truly empower your people to shine rather than record their misery in 6 minute increments.

Ed Chan of Chan & Naylor last week posted on Linked In. Chan’s argument is that accountants sell time. No. We don’t. We sell solutions to our customers’ problems. His argument is that the “solutions” (I am expanding his argument a little here, but I believe it is in the same vein as what he has written) are all compliance-based whereby all we are doing is the “same thing” for each client. As I have illustrated above, the basis of a lot of the compliance work is going to be automated or off-shored. So scalability only applies if you’re doing basic, processing and bookkeeping work. Not exactly what we’re trained for is it?

Similarly, setting an arbitrary hourly rate to charge them for your time isn’t reflective of their need or the value that they place on the work to be done. Using the same rate for everything you do makes you pretty “average”. And remember – average is where the best of the worst meets the worst of the best.

My belief is that every customer is unique and have their own set of fears, needs and the like. To try and put them all in one basket is to demean both them and the people who work on their files.

Chan’s argument is also based on the premise that all you have to do is to hire more people and more customers will come to you. Oh, to live in such a wonderful world!

From my experience (such as it is), the only way you can achieve this is to discount your offering to a level that drives people to you. And then, what happens to “the margin” that Ed believes is the Holy Grail? That and the fact that you’ll generally get the bottom-feeding clients who don’t value what you do anyway and will bring a whole heap of their “friends” along with them – High School Chemistry – like attracts like. You will also not exactly engage your people as they merely become cogs in a never-ending grind out of tax returns. Inspiring isn’t it!

So, in Ed’s world, where “you build a business to prepare a tax return”, I believe there will be regrets. Lots of them.

Customers don’t want tax returns. They want advice. Support, Counsel. Encouragement. SOLUTIONS. The tax return work is only there because the government stipulates it. Nobody really “values” it in the true sense of the word. And the ultimate disruption? I know of at least one of the Big Four that will be offering their clients compliance work for $0 in the coming years. How’s “the margin” on that?

Getting the business model right for accounting firms is critical given the disruptive times we are in. Making a bigger or cheaper version of what exists won’t answer the challenge – it merely cements in a race to the bottom for those firms that don’t adapt.

Regrets? Yep, I have them. A number of them. One I do not have however is getting rid of time-sheets and moving to a business model that will sustain our business, our people and our customers for a long time.

Oh – the loss they have made that I referred to above? It’s a loss of self esteem and belief in why they do what they do. And that, my friends, can be scaled!

Biography

Dr. Goddard earned his MA at Oxford, an MBA from Wharton, and his PhD from London Business School. He’s a Guest Lecturer at INSEA and formerly Gresham Professor of Commerce and Mercers School Memorial Professor at The City University. He is currently Research Associate of the Management Lab (MLab) at London Business School. He’s a teacher, writer and consultant in the areas of business creativity, strategic thinking, leadership and corporate transformation. Lead designer and director of senior-level, high-profile development programmes for many companies, including BP, ICL-Fujitsu, Rolls-Royce, Orange, Prudential, Ericsson, BG Group, Rio Tinto, Mars, Smith and Nephew, SCA, Danone, and Volvo. Over the last 10 years, he has worked with a third of the FTSE 100 companies.

Recent publications include articles on futuristic models of management (Sloan Management Review), the economic crisis (Business Strategy Review), cost strategy (Business Strategy Review), a new definition of accountability (Interconnections), as well as a monograph on employee engagement, social media and management innovation (CSC Leading Edge).

My book on organisational strategy, co-authored with Tony Eccles and entitled Uncommon Sense and Common Nonsense, was published by Profile in 2012. He is married, with 4 children, lives in London and Provence.

The Best Business Book Ron Read in 2014 (and Ed’s read in 2015)

His book is the best business book I read in 2014, and Ed says the same so far in 2015! There are so many quotable and profound insights in this work it’s hard to do it justice in a short review.

We highly recommend you read this work, especially if you’ve enjoyed some of the topics we’ve discussed on The Soul of Enterprise. Our thinking seems to be very much aligned with Dr. Goddard’s views on business.

He’s working on a new book on behavioral economics and we will definitely have Dr. Goddard back on the show!

Here are some of our favorite points from the book, sorted by topic.

Purpose of book?

We believe that most enterprises today are insufficiently entrepreneurial.

The great virtues of markets is that they disproportionately reward firms that have the creativity to see the world differently from their rivals.

The book’s thesis is that: market-based competition is a discovery process; that asymmetric knowledge is the object of the search; the business strategist is the intrepid explorer; the effective organisation spurs such exploration.

THE PRINCIPAL ARGUMENT of this book is that profit is a return on knowledge and that therefore decision-making in business should be modelled on problem-solving in science, which is the most reliable and productive form of knowledge acquisition so far invented.

In place of dogmatism, science injects a healthy dose of critical inquiry.

Scientists do not argue from facts to theories, except by showing that some of these facts falsify or refute some of these theories. Facts are used by scientists not as the source for their ideas but as the test of their ideas.

Uncommon Sense, Common Nonsense Defined

The basic law of wealth creation: principle of asymmetric knowledge – that is, any situation when somebody in a market knows something that nobody else in the market knows, and then has the courage to act on that knowledge.

We call this type of knowledge “uncommon sense.”

When the same sources of error unite all the competitors in a given space, they become what we call “common nonsense.” Most management theories are little more than sophistry or folk wisdom.

Austrian Economics Influence?

The Austrian rather than the neoclassical tradition of microeconomic theory competition is modeled as a discovery process where the rewards flow to entrepreneurs possessing valuable new insights or unique data rather than as a state of equilibrium.

Strategy

Strategy is less about the application of theory than the activity of theorising.

Chess masters do not achieve their mastery through the application of “best practice.” They are their own masters.

Scientific discovery or a work of art, it is a unique, non-repeatable event. It resists generalisation or theoretical explanation.

Strategic solutions do not generalise. They are built on insights, not rules or principles.

Businesses decline as the production of new insights dries up. A theory of business therefore cannot be a substitute for insight.

Any theory that puts forward a winning recipe for commercial success is a fraud. There cannot be an algorithm for making scientific discoveries or creating artistic masterpieces.

Firms outperform their competitors by aiming to be different, not better

“Strategy is about setting yourself apart from the competition. It’s not a matter of being better at what you do – it’s a matter of being different at what you do.” ––Michael Porter

“You don’t want to be the best of the best. You want to be the only one who does what you do.” ––Jerry Garcia

Ideas vs. Execution?

Aiming to be “better at implementation” is no more a recipe for success than aiming to be better generally.

Efficiency vs. Effectiveness? The Effing Debate

Russell Ackoff, “The righter we do the wrong thing, the wronger we become. Therefore, when we correct a mistake doing the wrong thing we become wronger. It is better to do the right thing wrong than the wrong thing right.”

Our favorite insight in the book!

Strategy is the rare and precious skill of staying one step ahead of the need to be efficient.

The true test of the innovative capability of a firm is that it never needs to worry about, let alone wrestle with, the cost competitiveness of its business model. An example is Apple. Immunised it against ever having to resort to such mundane and demoralising activities as operational excellence or change management.

Over the life cycle of a business, efficiency is usually exchanged for effectiveness, as focus is sacrificed for scale.

The pharmaceutical industry, more than any other industry, perhaps, understands the importance of “inefficiency” to innovation.

Best Practices/Benchmarking

Losers look to competitive benchmarks rather than to their own imagination for their model of success

The concept of best practice is perhaps the single most value-destructive idea to have come out of business schools and management consultancies over the past 20 years. All they have achieved is to urge the laggards to catch up with the herd.

The lead indicators of strategic failure are typically three: the firm benchmarks its costs against competitors; managers are set targets to close the gap on the most efficient competitor; managers seek solutions among the latest management fashions, with the result that the half-life of each new panacea gets shorter and shorter. Toyota did not get to outperform General Motors by emulating GM practices.

Business is not about best practice. It is about unique practices.

The day that Google starts to take an interest in competency profiling or balanced scorecards or corporate social responsibility or some other form of management sophistry is the day to sell Google stock.

Accounting Profession

I argue that the accounting profession is suffering from what philosophers call a “Deteriorating paradigm”—that is, as accounting gets more complex as it explains less and less.

It seems Dr. Goddard agrees, quoting James Noble of the FCA:

“Over the past decade the [accounting] profession has completely lost any sense of what accounts are for. …Accounts do not reflect reality. They reflect an extremely complex set of standards comprehensible to a tiny minority of professionals, if that. They are full of weird conventions such as goodwill write-offs, share options accounting and revenue recognition that I defy anyone to call reality…If accounts reflect reality and accounting standards are just fine, how is it that every bank in the UK has in effect become bankrupt when every single one received a clean audit opinion, including a going concern test [within a year of going broke]?” James Noble FCA

Small Visions

ASK CEOS TO NOMINATE the business leaders they have most admired, Richard Branson, Warren Buffett, Bill Gates, Steve Jobs and Alan Lafley. They’ll point to their bravery, decisiveness, boldness of their vision, contrarian beliefs, the originality of their strategies, the courage of their convictions, their self-confidence and willpower.

Now inquire into what strategies and policies they themselves are advocating in their own businesses, the answers that you get are depressingly familiar: cost reduction, 360-degree feedback, outsourcing, downsizing, margin improvement, shared services, process re-engineering and change programmes. Actions of most executives fall far short of their aspirations and ideals.

Simplicity is always the result of design

“There seem to be many people making things more complex but very few people trying to make them simpler.” Edward de Bono

Perhaps we should be as worried by complexity as we are about cost. TSM (total simplicity management).

“Black Belts” in simplification.

Many people in an organisation have a vested interest in making things complicated and keeping them that way. No one cuts costs by eliminating their own job.